The executive board of the International Monetary Fund has commended Canadian authorities for their sound monetary and fiscal policies, which have delivered enviable macroeconomic and performance since the mid-1990s.

However, the IMF continues to call for a variety of reforms.

In its annual report on Canada, the IMF forecasts annual real GDP growth to be 2.5% in 2007 and 3% in 2008. “The strong recent performance of the Canadian economy is likely to continue, although growth risks are tilted to the downside given the possibility of a larger-than-expected U.S. Slowdown,” the IMF noted. It also welcomed policy measures that seek to achieve durable improvements in productivity and competitiveness.

“Directors observed that the financial sector is well positioned to cope with a turning of the global credit cycle. At the same time, Directors saw some scope to improve financial sector efficiency and innovation by reducing regulatory impediments to bank entry and consolidation, as well as by moving toward establishing a national securities regulator,” it added.

The IMF said that its directors agreed that fiscal policy is appropriately focused on reducing debt, lowering taxes, and reforming the equalization system. “However, long-term fiscal sustainability will require continued debt reduction as well as steps to contain public spending on health care,” it said, adding that it welcomed the government’s commitment to using interest savings from debt reduction to lower personal income taxes, and also to reduce effective marginal tax rates on investment, noting that this is likely to provide larger efficiency gains than further cuts to the GST. “The reforms suggested by the O’Brien panel on reforming the equalization transfer system would appropriately make the system even more rules-based and predictable,” it added.

“Directors welcomed the emphasis on enhancing productivity growth and prosperity in the government’s plans,” the IMF said. “In addition to cutting effective tax rates on capital (which would be helped by action by provinces) and improving financial market competition, they noted that the business environment could be enhanced by phasing out restrictions relating to foreign direct investment, eliminating interprovincial barriers to trade in goods and to labor mobility, and increasing the flexibility of the immigration system.” The IMF also encouraged Canada to work towards increasing access to its markets for agricultural goods.

Jim Flaherty, Minister of Finance, welcomed the report. “The IMF report confirms what I have been saying for some time: Canada’s economy is strong and will only get stronger with the implementation of [its economic plan known as] Advantage Canada,” said Flaherty. “Advantage Canada sets out a bold and exciting course for a strong, united and outward-looking Canada, a Canada with purpose and passion, that believes in itself and is a shining example to the world of what a great nation can be.”